What is Credit Rating?

If you are considering any kind of credit you should be aware that you don’t automatically have the right to be accepted by lenders. Credit can be in the form of loans, interest free credit, mobile phone contracts and credit card applications. Lenders have to assess your risk in relation to providing credit to you. Therefore, lenders will want to perform a mandatory credit check against your previous and current financial status. They will be able to perform this check through credit agencies that provide this service to lenders. Upon you credit file being compiled, there will also be an associated credit rating attached. Lenders will then be able to assess how much of a risk you are when deciding on whether to provide credit or not.

Credit Ratings are compiled by various credit agencies; however, most lenders use two main agencies which are Equifax and Experian. All credit agencies use various methods to calculate your credit rating. The main criteria that will be used are the following; being signed onto the electoral register, having made payments for existing or previous debt in a timely manner and if you have ever been declared bankrupt or have any county court judgements (ccj’s) lodged against you. Your credit rating can also be known as a credit score which is a 3 digit number indicating to lenders your value in terms of credit. Many lenders use different methods of credit checking and according to what type of credit you are applying for, the credit check could vary. Therefore, if you are declined by one lender for credit, the same might not apply should you approach an alternative lender for credit.

If you have existing credit, it’s worth considering how your credit rating can be maintained. The main credit agencies will take into account certain factors when calculating your credit rating. These can range from the type of credit you are currently using, for example; credit cards, bank loans or interest free credit. They will also identify your payment history in relation to the credit you have, if you have always paid your debts in a timely manner and haven’t defaulted on any payments then your rating will be higher due to this. The amount of credit you owe and how long you have had the credit for will also be looked at. All of the above will be combined in order for the credit agency to provide a credit rating that is individual to you. Lenders can then judge if you are a suitable applicant in relation to your chosen credit option on the basis of your credit rating.

Maintaining a steady credit score is important if you apply for credit consistently. Lenders will look at your credit rating as a whole and then break it down into components. This will consist of your ability to meet your outstanding monthly bill payments. These could relate to credit card payments, telephone bill payments and even council tax. Keeping all your payments up to date and within the agreed limits will mean that you are effectively retaining your good credit rating. Lenders may sometimes look at your current bank accounts; they will check how long you have held the accounts for and also the balances on the relevant accounts. They will able to see if you regularly remain in credit or have to dip into overdrafts.